The head of the National Security Agency, the largest and most secret U.S. intelligence organization, was forced out last month after he repeatedly refused to endorse budget cuts sought by the Reagan administration, sources said.

The NSA chief, Air Force Lt. Gen. Lincoln D. Faurer, is understood to have contended that the budget cuts could erode U.S. intelligence capabilities. There also had been friction between the blunt-mannered general and senior Defense Department officials.

The NSA operates the network of U.S. spy satellites and worldwide listening posts used to monitor the development and activities of Soviet nuclear missiles and atomic submarines, as well as Soviet compliance with arms control agreements.

It also eavesdrops on an array of foreign electronic communications.

The agency has 65,000 employes and an annual budget believed to exceed $10 billion -- the exact figure is classified.

Faurer's dismissal by Secretary of Defense Caspar W. Weinberger leaves vacant one of the two top intelligence posts in the Defense Department and has set off intense jockeying within the Pentagon, the Central Intelligence Agency and the White House over who will succeed him.

It also occurs during a period of sweeping changes in the upper ranks of the military intelligence community.

Sources said Weinberger fired Faurer after the general refused to mute his opposition to reductions in the NSA's fiscal 1986 budget -- cuts apparently sought by the administration in an effort to reach a compromise with Congress on defense spending.

One official said Faurer's continued resistance had "created a big fuss in the intelligence community."

Although the precise cuts Faurer opposed are not known, sources said they involved money for construction of new facilities and installation of new equipment at the NSA's sprawling headquarters at Ft. Meade and elsewhere in the world.

One source said Faurer, who could not be reached for comment, believed the cuts would adversely affect U.S. intelligence capabilities.

Faurer, a West Point graduate with almost 35 years of military service, was scheduled to retire in August.

However, he decided instead to "go out in a blaze of glory," one source said.

He submitted his retirement papers March 19 and left his office April 1.